Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
Milk prices are showing some weakness from record levels set in August but remain well above year ago levels. The August Class III was a record $21.67, will decline to around $18.95 for September compared to $16.26 a year ago. The August Class IV price was $20.14, will decline to around $19.65 for September compared to $16.76 a year ago.
Weakening cheese prices partially offset by continued strong dry whey prices explain the September decline in the Class III price. On the CME 40-pound cheddar blocks averaged $1.9725 per pound in August, started September at $1.79 and have since declined to $1.74. Cheddar barrels averaged $1.9571 per pound in August, started September at $1.735 and have since declined to $1.6775. West coast dry whey averaged $0.5921 per pound in August and is now trading in the range of $0.60 to $0.6275.
Cheese prices could weaken some more but no price collapse is anticipated. While July 31st stocks of both American cheese and total cheese stood at 1.4% higher than a year ago, they were not burdensome. And the fact that cheddar cheese production for July was down 5.4% from a year ago with total cheese production down 2.0% will add support to cheese prices. Cheese buyers will begin to assess their inventories and purchase decisions to fulfill their anticipated upcoming holiday sales. So cheese prices could rally back some. As of now an average cheddar cheese price of $1.75 per pound or higher could hold to year’s end and keeping the Class III price between $17.80 to $18.30 for the last quarter of the year.
CME butter averaged $2.0882 per pound in August, fell below $2.00 on September 6th and has since declined to $1.8750. Butter production is running well above a year ago with July production up 21.6%. But, butter sales continue to be favorable, and as a result, July 31st butter stocks were still 3.0% below a year ago and 23.9% below the 5-year average for this date. Butter prices could rally back to the $1.90 per pound level as we approach the holiday season. Nonfat dry milk prices have weakened some but West coast nonfat dry milk is still trading in the $1.42 to $1.56 per pound range. With some weakness in world prices and U.S. exports down some on a volume basis further decline in nonfat dry milk prices are likely. But, still the Class IV price could stay in the $18 to $18.75 range for the last quarter of the year.
Fluid milk sales (beverage use) continues to be sluggish meaning more milk is available for cheese and other manufactured dairy product production. Fluid milk sales for the January through July period were down 1.4% from a year ago.
USDA’s released report for August milk production was somewhat surprising and not bullish for milk prices. USDA estimated August milk production for the U.S. to be up 2.1% from a year ago compared to just a 0.4% increase in July and the highest relative increase since the 2.1% increase last March. Milk cow numbers which began to increase from one month to the next back last October increased another 2,000 head in August. August cow numbers were 1.1% higher than a year ago and milk per cow was 1.1% higher resulting in the 2.1% increase in total milk production.
This increase in milk production continues to be lead by Western states. Compared to August a year ago, Western states experienced the following increases: Arizona 6.3%, California 2.9%, Colorado 6.2%, Idaho 3.9%, New Mexico 4.9%, Oregon 3.8%, Texas 11.1%, Utah 2.6% and Washington 6.7%. With hurricane Irene followed by tropical storms milk production was expected to be down in Northeast states. Production was down 0.5% in New York and 2.1% in Pennsylvania. Production was also down 2.8% in Ohio and 1.4% in Virginia. Another contributing factor for a greater increase in August milk production was some recovery from hot and humid July weather experienced in the Midwest that depressed milk per cow. Compared to a year ago July milk per cow and August milk per cow was as follows: Iowa -2.3% and +3.5%, Minnesota -8.4% and -4.7%, and Wisconsin -4.2% and +1.1%. With cow numbers holding the same in these states the change in total milk production compared to a year ago for the months of July and August improved from a -6.5% to just a -0.6% for Iowa, a -8.1% to a -4.5% for Minnesota, and a -4.1% to a +1.2% for Wisconsin.
The rate of growth in milk production for the remainder of 2011 and the winter of 2012 is not likely to increase but ought to slow. If the rate of increase in milk production does not fall back to less than 2%, the cheese, butter, nonfat dry milk prices and resulting Class III and Class IV prices shown above could be a little optimistic. Very high feed prices along with these likely lower milk prices ought to encourage heavier culling of dairy herds and less grain and concentrate being fed which would dampen increases in milk per cow. Alfalfa hay prices are up substantially for Western states. Compared to a year ago August alfalfa hay prices were up 97% for California, 83% for Arizona, 104% for Idaho, 66% for New Mexico and 37% for Texas with prices averaging 62% higher for the U.S. Corn prices are averaging about 81% higher than a year ago and soybean prices 28% higher. Dairy cow slaughter thus far this year is 4.6% higher than a year ago and is likely to increase. But, milk prices may still average lower the last quarter of this year and into 2012 due to a sluggish economy holding back any strong increase in domestic milk and dairy product sales. With anticipated increases in New Zealand and Australia milk production as well as the EU countries anticipated U.S. dairy exports, while still favorable are likely to fall below year ago levels. U.S. butter exports have already shown decreases. Butterfat exports for July were down 36% from a year ago. But July exports of other dairy products remained well above a year ago with increases of 22% for nonfat dry milk/skim milk powder, 23% for total whey proteins, 4% for cheese and 10% for lactose. On a total milk solids equivalent basis U.S. exports for January through July accounted for 13.1% of U.S. milk production compared to 11.9% a year ago.